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HDB 99 year lease expiry: Potential time bomb for home ownership?

Some homeowners are disgruntled with the fact that HDB flats only have a 99 year lease

About 82 per cent of Singaporeans live in HDB flats. Many of them also see their flat as more than a home – some Singaporeans assume that their flat will provide for their retirement. The idea is that, when they get older and need less space, they can sell their flat (which would have appreciated in value), and buy a smaller one. Coupled with their CPF, it should see them through their twilight years. But is this really a safe assumption with all HDBs having just a 99 year lease?

The 99 year lease

Some would argue that HDB flats are not so much owned as they are rented. The reason is the 99 year lease on these units. During a Parliamentary session on 20th January 2014, then Minister of National Development Mr. Khaw Boon Wan confirmed that, at the end of their 99 year lease, HDB flats will revert back to the landowner (HDB). The land will then be turned over to the state. This means the value of a HDB flat at the end of the lease is zero.

To most Singaporeans, this is an abstract principle.

To date, no HDB development has reached the end of its 99 year lease. The government has always intervened before this happens, through the Selective En-Bloc Redevelopment Scheme (SERS.)

Is SERS the answer to the time bomb?

SERS was launched in August 1995, and is – by official definition – a programme to rejuvenate aging housing estates. We note that neither HDB nor the Ministry of National Development has explicitly stated SERS is meant to renew housing leases, although it has served that function in its implementation.

SERS provides residents with compensation based on a valuation of their flat, as well as rehousing benefits. These benefits vary according to each resident’s situation. Some of these include:

Guaranteed availability of a flat, at a planned “replacement site”

A subsidised price for the replacement flat, with discounts ranging between 20 percent and 40 percent

Compensation equal to the market value of the resident’s flat. To our knowledge, this has included Cash Over Valuation (COV)

Before 2004, residents affected by SERS could choose new units only at a given “replacement site.” After 2004, residents could choose flats from other estates, without losing their rehousing benefits. As of 2011, residents affected by SERS also receive priority when applying for a new flat anywhere.

This is based on our observation of SERS at Rochor Central, Upper Boon Keng Road, and Strathmore Avenue. Around 39,000 flats in 79 locations have been reclaimed under SERS, since its inception in 1995.

HDB often rolls out SERS when an estate is about 40 years into its 99 year lease. As of 2014, about 300 HDB blocks (approx. 31,000 flats) across Singapore fall into this range.

So there is no need to worry about the 99 year lease time bomb right?

To be blunt, we would worry anyway. The two reasons are:

No guarantee of SERS happening

No guarantee of adequate compensation

No guarantee of SERS happening

The locations targeted for SERS are not disclosed until the final announcement, in order to prevent speculation. This means you cannot buy an old flat (one with 59 years or less on the lease) with any confidence that SERS will happen. The fact that it has often happened is not a guarantee that it will happen, and the government does not seem to have any obligation to use SERS.

Say you are are 35 years old when you buy such a flat. By the time you retire at 65, there will only be 29 years lease left on the flat. Most of your CPF money would have gone into servicing the loan for this flat, but you would be lucky to make even half of what you’ve paid upon resale.

In our experience, few buyers are interested in sinking hundreds of thousands of dollars into a property that will only last another 30 years or so.

Even if there are interested buyers, the prospective pool is limited due to loan limitations – several banks will not give out loans for property with less than 60 years left on the lease, or will provide only minimal financing (e.g. Less than half the valuation.) In addition, note that Singaporeans cannot use their CPF to purchase a property if the lease has less than 30 years remaining.

How then can you sell the flat to supplement your retirement?

Your only hope will be SERS. But as we’ve pointed out, this is not a guarantee.

It is a clear lesson to buyers: do not fork out high prices for flats with expiring leases, even if the location seems great. If you insist on buying a flat with 30 or 40 years left on the lease, do not count on it to supplement your retirement. SERS may not come around to save you.

No guarantee of adequate compensation

HDB conducts a satisfaction survey for each SERS event, which is posted on their website. The latest survey, in 2013, shows an 87 percent approval rate. While this is not solely related to financial compensation, we can safely assume that being adequately compensated (i.e. At least able to purchase a replacement flat) is reflected in this.

However, there is no guarantee that overall compensation will suffice. Even if market valuation is paid for the flat (and we assume it has not drastically declined at the time), it may not be sufficient to pay for a new property in the given market.

We assume that HDB will do everything in its power to mitigate this, such as through the subsidised prices for new flats. But for retirees who are thin on savings, a low valuation – or an inflated property market at the time – can eat into their already meagre funds.

What can be done?

HDB and MND are often criticised for not having a clear compensation plan, for when leases expire. This is unfair. There has been a clear plan for when leases expire to date; SERS has helped so far, but it something that exists by the grace of the current government and should not be relied upon indefinitely.

It falls to each Singaporean to be financially savvy, and to pick their property investments (or home purchases) with foresight. It is clearly our culture of self-sufficiency, rather than our welfare policies, that form the underpinnings of our nation.

Reader Interactions

Comments (5)

3 years ago at 1:16 pm

Anthony Tan

Why are HDB selling new flat in mature estate at as such high price, $694,000 for a 5 room clementi BTO flat Feb2017. The flat will cost at least $1 million after factored in mortgage interest and renovation. HDB made so much profit from the sales of flat and now after 40 years the ministry tell us only small percentage of flat will be pick for Sers.
The general public has been mislead by HDB that every HDB flat will be picked for Sers before the lease expired. The examples of Sers on some mature old estate so far created false scenario and misunderstanding to the public. Why nobody in the ministry so far there to stand out and tell the truth about the Sers system.
Sers itself is double standard and misleading to the public as it creates false hope and illusion.
Sers must be apply across the board for all HDB flat to ensure fairness.

Mr Wong is worry about the short lease HDB resale flat selling at high price but do you think this seller has a choice, what the price of new HDB flat in mature estate that HDB is selling to the public ?
His insensitive comments has generated fear and disunity among millions of Singaporean living in HDB flats.

I really hope the Ruling party could quickly come out with solutions to address this issue before the people of Singaporean start to loose confidence and put future of Singapore at risk

Actually, what you say doesn’t make sense because it is Singaporeans who assumed that SERs would happen, URA or HDB did not mention in any way that all HDBs would be applicable for SERs. People basically saw that all HDB so far have undergone SERs and assumed it would happen all along. Lawrence Wong has actually stepped out and told everyone that SERs is not applicable to every HDB estate so I’m not sure if you actually read through this whole post before commenting?

As for the high price of the Clementi flat you mentioned – Have you studied what price equilibrium is? You might as well be asking why truffle or gold is so expensive.

SERs must be applied to ALL HDBs to ensure fairness? Fairness in what exactly? You pay for a 99-year leasehold and expect the government to build you a new development every 99 years for the rest of your life, AND the generations passed down? Don’t be absurd Anthony, the government is meant to provide affordable housing, it isn’t meant to be your babysitter goddammit.

And please do not voice your idiocy on behalf of the millions of Singaporeans who are unlikely to share such unpolished opinions as you. Seeing that you brought up politics, I can’t help but feel you think the opposition would be better? That the opposition would spoon feed you for the rest of your life ? That thought is laughable. Ha.

How many Singaporean actually know what will happen to their HDB flat when is near or after the 99 lease expire ?
Even the property agent themselves are not aware and everybody seem to has the assumptions that flats will be rescue before lease expires, you can also use google to find the people opinion.
Why is this so, because a flat is a shelter and the basic necessity need for all people.
Did any of the minister tell the public and communicate on the Sers issue openly before.
Why is Mr Wong comments stirred up such a big debate online?
Talk to people around you staying in HDB and see why only now they feel differently after Mr Wong comments?
Why the HDB valuation officer give such a high valuation price for old resale flat with less than 60 or 70 years lease? Shouldn’t it be straight line depreciation just like car COE?
Do you mean the ministry do not have means and tools to contain the HDB price, just like the cooling measures targeted at private property.
The ministry has directly and indirectly caused the high resale hdb price.
I has been a great supporter for the ruling party but not a blind supporter.
When things we see not right that affected millions of our people , we should voice out and contribute ideas to help resolve the issue.
I am very disappointed by Mr Wong insensitive comments and without providing solutions to the problems which created such a big mess online, have you already heard/read the voice of the people online ?
No doubt hdb is on 99 years lease, government cannot have the impression of running HDB as a profit making organisation. Can’t you see the problem with SMRT, before focus only on profit and no maintenance, caused such a big mess on transportation , now then they realise the mistake and try to correct it.
The basic need of the people must first be taken into consideration above all.
If the government could not afford to apply Sers for all hdb flat , please provide us with other options such as lease extension, old flat in mature estate exchange for new flat in non mature estate etc to give Singaporean more choices and also confidence.
Please remember that about 82% of Singaporean stay in hdb.

The core fear is uncertainty. Perhaps terms such as asset, monetize, valuation has been the repeat throughout time which has lulled our acceptance that these homes would be with us till we grow old and die.
I for one appreciates these issues (yes, issue with an S) being raised as it would force me to think and plan ahead for the inevitable. Yet I am unable to as there is speculation rife on what steps the goverment would take to address this pending outcome
Do we need to know what steps the goverment take before planning ahead? Unfortunately yes. As with the previous govermental action on cooling the overheating property back in 2016, what they (ruling party) do affects and ripples throughout our lives. I do consider myself as part of the 82 percentile, and I for one would wish that further clarity can be provided on this ticking time-bomb of a matter on whether can and would be possible to resolved.
Clarity inspires confidence and trust but acting otherwise would not be the wise actions of a ruling government.